About Piponomics

Economics plays a huge role in the foreign exchange market. I enjoy looking at economic trends and trying to see how it may affect currencies, and life in general. I will post my thoughts and observations here. I'm throwing macroeconomics, forex trading, pop culture, and everyday life into a pot and hopefully the final product are lessons about the FX market that's easy to understand.

China is Still the Place to Be

Slowdown. China. These have been the top two buzz words we’ve been hearing recently. Just go to the Bloomberg and Reuters websites and you’ll see dozens of articles saying how Chinese growth concerns have been weighing down heavily on market sentiment.

How long will this concern last? In my opinion, not for very long. The fact is, when it comes investing, China is still where you want to put your money. Below are the top three reasons why.

Leading Indicators point up

First of all, leading economic indicators still point to a strong Chinese economy. China’s official purchasing managers’ index (PMI) rose to its highest level in one year and printed a reading of 53.3 for the month of April. Since the reading is above 50.0, it indicates that the country’s manufacturing industry is going to expand further.

The services sector also kept up with the manufacturing industry. The seasonally-adjusted HSBC China PMI surged to 54.1 in April from 53.3 in March. This is its strongest reading since October 2011. Survey participants said that the jump was the result of better demand conditions, successful product launches, and marketing campaigns.

Leading indicators like the PMI is very important when analyzing the outlook of a country. They give us a preview what’s probably going to happen in the next few months before the change actually occurs.

Influx of capital

Despite all the news that investors were worried about China’s economic state, money actually continued to flow in the country. A report from the China Security Times revealed that foreign investors increased their stakes in Chinese equities by six whole percentage points in the first quarter of 2012.

This suggests that the worries are simply worries, and that the big boys still have a lot of faith in China.

Rebalancing is happening

One fundamental flaw in China’s economy is that internal consumption contributes a very small share in its GDP. Rather than consumer activity, the Chinese economy is mostly fueled by international trade and government investment.

This is dangerous because if external demand falters, China will have nothing to fall back on.

The imbalance in China has grown so big that government officials have been forced to acknowledge the problem. As a result, Premier Wen Jiabao has made a pledge to do what he can to repair the Chinese economy.

The Premier vowed to stop the economy’s dependence on exports and encourage a more balanced growth that would uplift the wages and expenditure of farmers and workers.

2 comments

lol, I’m an asian dude too but Im not very optimistic with China in long run. I fear soon or later China’s bubble will burst just like Japan in the 80s. I’m talking about housing and property sector. They have too much ghost town yet still building.